Modular housing no longer simply a niche offering

Long regarded as the poor cousin of the conventional building industry, modular and transportable housing is experiencing unprecedented demand, with a recent influx of new operators taking on the industry's big three names - Nomad Building Solutions, Fleetwood Corporation and Ausco Modular.

The stakes are high, with new and established players alike jockeying for the multi-million dollar housing tenders on offer from the resources sector and government.

WA Business News has identified nearly 20 companies selling modular housing in the state, with more than half having set up in the past two years.

And while this group includes Queensland-based The MAC Services Group - a national owner/operator of large scale, remote area villages - the majority of new entrants are start-up businesses headed by property developers, builders and former employees of the transportable housing sector.

It's a change brought about by a confluence of factors, particularly the surge in interest from mining companies desperate to house a burgeoning workforce in the north-west.

Added to this are rising construction costs and long lead times, both of which have plagued the traditional building industry, and have created demand for transportable housing in regional areas.

Charlie Robertson, director of Perth-based property development company Ibex, said there was a niche for his company in both markets, but particularly in the mining sector.

"It's not that the market isn't well served at the moment, but just that the volume of work available is huge. We saw that it would be difficult for existing companies to meet demand," Mr Robertson said.

Ibex is one of three shareholders in new outfit Elwood, which has the Australian distribution licence for a modular timber product from NZ.

Called Lockwood, the product has catered to the NZ holiday home market for 50 years, but Mr Robertson believes the mining industry will be a major client locally.

"We've been watching the market over the past 12 months and, of the projects we're aware of, there's between $200 million to $300 million worth of [modular home] construction in WA. The Pluto gas project alone had a workers camp requirement to house 1,500 people at [a budget of] $50,000 per person," he said.

While it's difficult to calculate the size of the potential market in Western Australia, most operators agree it's in the hundreds of millions of dollars.

The sector's biggest operator, Nomad Building Solutions, expects to turn over more than $400 million in the 2009 financial year, and managing director Phil Guy says that number is likely to double by 2013.

By his estimates, there are nine oil and gas projects in Australia at varying stages, each with a requirement to house between 2,000 and 3,000 workers.

Each of these is worth up to $350 million as a turnkey project, including installation.

And leaving aside the oil and gas sector, there's a multi-billion dollar market, according to Mr Guy.

"I would say the market size, excluding your typically metro residential [sector], is probably $3 billion a year, Australia-wide," Mr Guy said.

"[In the oil and gas sector], there's probably opportunities the industry has never seen before, in terms of size, and there is no doubt in my mind that will be mostly modularised, off-site [accommodation]."

Under Nomad's strategic plan for the next five years, revenue growth is expected to come from both the mining sector and government contracts.

Mr Guy said police stations, schools and government housing would increasingly be catered for by the modular building industry - a trend that was already evident in the eastern states.

"The appetite for transportable products hasn't been as strong in those traditional building industry sectors, but I think...it's only a matter of time," he said.

"The ability to build in a controlled environment means timing of projects is brought forward - it doesn't take as long, so therefore it mitigates a lot of risk."

Adelaide-based Modular Housing Solutions, which has two directors in Perth, has set up partly with a view to capitalising on these government contracts.

Director Stewart Johnston said modular building was particularly suited to indigenous housing contracts, because of the training and employment opportunities associated with it.

The company is currently in negotiations with the owners of the Munthoola estate in Williams, to provide house and land packages under $300,000, and is also considering work in Boddington, Geraldton, Port Hedland and Karratha.

One of the sector's largest players, Fleetwood Corporation, believes these affordable housing projects will become a driver for the industry in future.

"These houses can be built quickly, relatively cheaply and put in place with a minimum of fuss. We have some confidence that as time goes by [the modular product] will become much more acceptable in areas closer to cities, whereas there's been a bit of resistance by councils," managing director Bob McKinnon said.

Fleetwood's manufactured accommodation division includes workers' camps - the biggest of these is its 1,500-bed Searipple Village in Karratha for Woodside Petroleum - retirement villages and park homes, portable buildings and modular housing.

The latter contributes only 4 per cent of total revenue, and while it has been growing rapidly, the company believes orders from lifestyle hobby farmers and property owners will continue to underpin the business.

"We have a substantial business based on the individual buyer, and that's quite deliberate in our case," Mr McKinnon said.

"An important part of Fleetwood's strategy has been this diversification...because the resource booms don't last forever."

Mr McKinnon said that, while the state's mining boom and a degree of unmet demand had allowed new operators to get a foothold in the market, they were unlikely to pose a real threat to market share in the long run.

"We manage our lead times pretty well. We had a situation some years ago where they did drift out, but I don't think there's going to be a mass introduction of competitors. They come and go, but the mainstream will [remain]," he said.

Nomad's Phil Guy agrees that new operators aren't a threat to the established industry, particularly those importing from China, because he says product quality is yet to be tested by the market.

"The time it becomes a real threat is if capacity gets used up in this industry and people have nowhere to go," Mr Guy said. "It's up to us to make sure we've got the capacity and also not to gild the lily on pricing."

He said a more likely change would be the emergence of partnerships between construction groups and modular housing providers.